NAT .FSA. E. C5. Analysis Techniques
NAT .FSA. E. C5. Analysis Techniques
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FINANCIAL STATEMENT ANALYSIS FRAMEWORK
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ANALYTICAL TOOLS AND TECHNIQUES
❖ COMMON-SIZE ANALYSIS
❖ RATIO ANALYSIS
❖ DU PONT ANALYSIS
PRUFROCK CORPORATION
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CHAPTER 5
FINANCIAL STATEMENTS ANALYSIS
01 02 03
COMMON-SIZE ANALYSIS RATIO ANALYSIS DU PONT ANALYSIS
❖ DEFINITION:
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1.1 COMMON-SIZE ANALYSIS
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1.1 COMMON-SIZE ANALYSIS
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1.2 COMMON-SIZE ANALYSIS
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1.3 COMMON-SIZE ANALYSIS
▪ Vertical common-size cash flow statement (1) expresses each line item as a percentage of revenue (2) or
each inflow of cash expressed as a percentage of total cash inflows and each outflow of cash
expressed as a percentage of total cash outflows.
▪ 1st method is useful in identifying trends and forecasting future cash flow
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1.3 COMMON-SIZE ANALYSIS
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CHAPTER 5
FINANCIAL STATEMENTS ANALYSIS
01 02 03
COMMON-SIZE ANALYSIS RATIO ANALYSIS DU PONT ANALYSIS
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2 CATEGORIES OF FINANCIAL RATIOS
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2.1 LIQUIDITY RATIOS
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2.3.2.1 LIQUIDITY RATIOS
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑎𝑠ℎ
𝐶𝑎𝑠ℎ 𝑟𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Interval measure =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑑𝑎𝑖𝑙𝑦 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠
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2.3.2.2 LEVERAGE RATIOS/ LONG-TERM SOLVENCY RATIOS
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2.3.2.2 LEVERAGE RATIOS/ LONG-TERM SOLVENCY RATIOS
Total Debts
Total debt ratio =
Total Assets
Prufrock’s
financial leverage
Total Debts ratios ?
Total debt to Equity ratio =
Equity
Total Assets
Equity multiplier =
Total Equity
EBIT
Times Interest Earned =
Interest
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2.3.2.3 EFFICIENCY RATIOS/ TURNOVER RATIOS
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Prufrock’s
efficiency ratios ?
Sales 365
Receivables Turnover = Days ′ sales in receivabes =
Accounts Receivable Receivables turnover
COGS 365
Payables Turnover = Days′ sales in payables =
Account𝑠 Payable Payable turnover
Sales
Total Assets Turnover =
Total Asset𝑠
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2.3.2.4 PROFITABILITY RATIOS
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2.3.2.4 PROFITABILITY RATIOS
Net income
Profit margin =
Sales
Prufrock’s
profitability ratios ?
EBIT = Profit before tax + Interest
Net income
ROA =
Total Assets
Net income
ROE =
Total Equity
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2.3.2.5 MARKET VALUE RATIOS
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2.3.2.4 PROFITABILITY RATIOS
Net income
EPS =
Shares outstanding
Prufrock’s market value
ratios ? Assuming that Price per share
PE Ratio =
Prufrock has 33 million Earnings per share
shares & the stock sold
for $88 per share at the Market value per share
end of the year PB Ratio =
Book value per share
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CHAPTER 2
FINANCIAL STATEMENTS ANALYSIS
01 02 03 04
FINANCIAL STATEMENTS COMMON-SIZE ANALYSIS RATIO ANALYSIS DU PONT ANALYSIS
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2.4 DUPONT ANALYSIS
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2.4 DUPONT ANALYSIS
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2.4 DUPONT ANALYSIS
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2.4 DUPONT ANALYSIS
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2.4 PROBLEMS WITH FINANCIAL STATEMENT ANALYSIS
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